Background                                                                  Download the PDF

Following the foreclosure crisis of the late 2000s, a growing number of American households rented rather than owned. As the demand for rental housing rose, the need for affordable housing options climbed.

By 2013, more than one in two renters in the nation’s largest metropolitan areas faced a housing cost burden (that is, housing-related costs accounted for more than 30 percent of their income). Of those households, 54 percent lived in the suburbs.

For low-income households, the challenge of affordable housing is particularly stark and is compounded by the limited housing assistance available. According to the U.S. Department of Housing and Urban Development’s Policy Development and Research division, nearly half of very low-income suburban renters with severe housing cost burdens received no assistance, though they were eligible for support.

Traditional tools to address housing affordability, such as the federal Low Income Housing Tax Credit (LIHTC), are limited and are often not responsive to quickly changing market conditions. This makes it difficult to effectively address the growing affordable housing gap in communities across the country.

The Housing Partnership Network (HPN), founded in 1990, is a network of 100 of the nation’s leading affordable housing and community development nonprofits. These organizations work together through HPN to increase the affordable housing stock by sharing effective business practices, promoting innovation, and improving housing policy. As demand for affordable rental housing grew in the wake of the housing crisis, HPN’s members saw a need for a more flexible and responsive financing tool to preserve affordable housing in changing communities.

The Innovation

In January 2013, HPN and its partners launched the Housing Partnership Equity Trust (HPET). HPET operates as a real estate investment trust with a focus on a “triple bottom line,” that is, a financial return for investors; a commitment to make buildings more energy efficient; and a social mission that targets the housing and service needs of low- and moderate-income residents. HPET pools equity investments from the John D. and Catherine T. MacArthur Foundation, the Ford Foundation, and Prudential with a line of credit from Citibank and Morgan Stanley. HPN manages and operates HPET.

As designed, HPET finances up to 95 percent of the cost of multifamily apartment buildings, and the nonprofit partner contributes at least 5 percent of the purchase price. HPET targets properties that are currently naturally affordable for residents with incomes between 50 percent and 80 percent of the area median income (AMI) but that are at risk of being redeveloped into higher-priced units. It also targets LIHTC properties whose affordability restrictions are expiring. The nonprofit partners act as owners and operators of the building and offer additional on-site services to meet the needs of the residents—ranging from early childhood care and education programs to afterschool services to adult education courses and bilingual staffing.

Several elements make HPET a particularly innovative and effective model for meeting affordable housing needs.

  • The scale of the ready capital HPET provides allows nonprofit partners to quickly make market-competitive bids. Traditional tax credit deals can take as long as two years to finalize. Instead, HPET funds allow nonprofit partners to close a deal within two to three months. That means the nonprofit partners can compete on cost with private developers (rather than paying a premium for the longer timeframe tax credit deals require) and pass those savings on to tenants.
  • HPET has a national reach, but it responds flexibly to local needs. Affordable housing regulations differ by locality. Because each nonprofit partner best understands its local regulations, it can incorporate specific state, county, or town subsidies or tax incentives into its financing deals where applicable. In addition, the nonprofits can assess residents’ needs within the local context of services and supports and tailor the services accordingly.
  • A funding model based on cash flow means HPET’s nonprofit partners are more self-sufficient and resilient. When a deal is financed through HPET, the nonprofit owner/operator contributes at least 5 percent of the purchase price. The nonprofit organization then receives 15 percent of the revenue from the property and HPET receives 85 percent. Once HPET has earned an 8 percent return on its investment, the nonprofit’s share of revenue increases to 25 percent. Thus, the nonprofit partner is building equity in the project over time, unlike in traditional tax credit deals. The nonprofit partner also has access to a steady stream of income, which can help finance operations and services for residents.
  • HPET’s triple bottom line taps into a growing interest in social impact investing. Given the significant shortage of affordable housing, the HPET investment is low risk. Investors secure a stable return on their investments, while simultaneously fulfilling the social mission of providing stable housing to low-income households and improving the environmental impact of these facilities. HPET’s market-driven model for financing affordable housing for residents whose incomes place them at 50 to 80 percent of AMI also frees up limited resources, such as federal tax credits. In turn, those resources could be used in deals that are harder to finance in the traditional market, such as those for residents earning below 50 percent of the AMI.


HPET launched in April 2013 with an initial fund of $100 million. That $100 million investment has financed four deals to date: one urban project (Norfolk, VA) and three suburban properties (Fairfield, CA, and two in Chicago’s suburbs). These deals underscore the flexibility of HPET’s design to provide financing in diverse markets and in both urban and suburban settings. These projects have preserved 735 affordable housing units and produced a 6 percent return to investors, on average. In addition, two projects are in the pipeline, which will close out the first $100 million in investment.

Building on the success of the first round of funding, HPN and its partners are raising another $225 million for additional projects.


Although HPET has demonstrated success as a social-purpose real estate investment trust, HPN and its partners have encountered several barriers to creating and expanding this market-driven model of affordable housing financing.

These challenges include:

  • Affordable housing nonprofit organizations are accustomed to managing their operations around compliance with tax credit and subsidy regulations. Adopting the market-based, cash-flow HPET model means adjusting their management approach, and often their infrastructure and reporting systems.
  • Private corporations and many mission-driven organizations, such as pension funds and philanthropic endowments, are prevented from investing in HPET because of their fiduciary duty to maximize returns. Even for those that can write off lower returns because of HPET’s social impact, investors can be deterred by the lack of industry benchmarks to gauge dividend rates.
  • Local policies do not always favor the most cost-effective affordable housing development. In some communities, incentives promote new affordable housing, even though building new is more expensive than rehabilitating the existing housing stock.

Implications for Policy

To support innovative financing tools in the affordable housing sector:

  • Funders should invest in organizational capacity-building to help established affordable housing nonprofits transition to management systems and structures that allow them to pursue unsubsidized affordable housing models in addition to traditional avenues of financing.
  • Federal, state, and local regulations should be aligned and reformed to permit a mission-driven organization to invest in funds like HPET. These types of funds may offer lower returns than typical private-sector real estate investment trusts, but they are both stable and have a measurable social impact.
  • In addition to creating incentives to expand the affordable housing stock, policymakers should align subsidies and credits to preserve existing affordable housing, both in markets facing redevelopment and housing price pressures and where disinvestment has led to the deterioration of affordable properties.

Photo credit: Flickr user Andrionni Ribo